Unexpectedly landing back home in the UK at the start of the pandemic, my partner and I decided that it was time to embrace the enforced stability of closed airspaces and start looking for a long term home for our growing family.
But when we made the decision to start actively looking for the right property, we didn’t realise quite how frustrating the process would be. We don’t fit the typical mold attractive to mortgage providers (one non-UK citizen, both having moved around a lot with recent tax and employment records across multiple continents), which made it hard to find a lender. Our problems were only exacerbated by the changing regulatory environment thrown up by the pandemic and Brexit. Needless to say it’s been an eye-opening experience (and it’s not over - we don’t have the keys yet!).
The frustrations that I have felt from a relatively privileged position are a fraction of those facing other Europeans. For many, homeownership is increasingly unattainable. High median home prices coupled with hard to obtain mortgages and steep down payment requirements have left many on the sidelines, while a recent survey by Dutch bank ING found that a whopping 65% of non-homeowner respondents in 13 European countries believed that owning their own home was a symbol of success. Even more sobering: the same survey found that 48% of respondents believed that they would never own their own home.
The good news is that things in the property market are changing, even if not in time for me to stop shouting ‘why aren’t you using an app for this’ at my computer as I watch the solicitors clumsily email their way through the conveyancing process.
The past few years have seen the creation of dozens of tech-driven startups that are trying to help people like me navigate buying and owning a home across the homeownership “life-cycle” – from preparing to buy a home all the way to maintaining a home after purchase and using it to build equity. Each of these startups has a unique and creative approach to offering services that have been traditionally provided by large financial institutions.
Traditional financial institutions have struggled to serve homebuyers across the continent. First and foremost, it costs a financial institution the same amount to underwrite a $100K loan as it does a $1M. This perverse logic incentivizes financial institutions to seek out large loan sizes, leaving everyday Europeans unable to finance the purchase of a home. Additionally, financial institutions across the continent typically require large up-front deposits for home buyers, sometimes as high as 20% of the purchase price. Since many Europeans do not have that amount of cash on hand, purchasing a home is not an option.
Credit bureaus have also struggled to serve homebuyers, especially during the pandemic. One of the fundamental requirements from large financial institutions in order to purchase a home is a stable job and a traceable financial history. As a result, millions are left on the sidelines because of their sporadic income, scattered financial histories, or residency status. This has only been exacerbated by the pandemic for vulnerable groups such as refugees, who are 60% more likely than their hosts to work in industries highly impacted by the pandemic.
Financial health-oriented startups are filling the gap.
Perhaps the most well-known startups in the proptech space are online property portals such as Purple Bricks in the UK and Idealisita, the biggest player in Southern Europe. These companies have dramatically reduced the informational asymmetry in the marketplace and have made the process more transparent for both buyers and sellers. However, they have done little to tackle the affordability issues that so many across Europe are facing.
Libeen and Worig are two notable names building products that make renting or buying a home in Europe more attainable. Libeen, based in Spain, is empowering low income individuals to access affordable homeownership. Co-Founder Sofia Iturbe has lived experience of this issue. She explains that “none of my friends nor I had the ability to put a large down payment on a house but we were all frustrated that we were throwing away our rent to landlords.” Libeen solves this problem using their innovative rent to buy, smart housing model that allows their customers to start using their rent to purchase a home of their choice.
Worig, a Croatian startup, tackles affordability from a different angle. They have developed a holistic credit-scoring approach that helps to remove the high costs associated with moving into a new home. Nino Cosic, one half of the two brother co-founding team, says that currently “landlords charge up to three months of rent as a move-in fee, directly impacting lower-middle-income people.” These costs are further highlighted by the fact that, according to Eurostat, in nine EU member states, including Croatia, more than a third of the renting population spent more than 40% of their disposable income on housing. Worig and their platform Najam.hr were created to solve this problem by increasing the trust and informational symmetry between landlord and tenant, first by understanding their credit history.
Buying or renting an affordable house is an important pathway to building one’s financial health. As Europe looks to rebuild from the economic destruction of the pandemic, ensuring affordable access to housing for all citizens should be a priority. Entrepreneurs with lived experience across the continent are ready to help make that dream a reality for all Europeans.
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